MONTREAL - The railway at the centre of the Lac-Megantic disaster is set to have its Canadian licence revoked, prompting fears of an economic ripple effect that could swamp businesses, workers and consumers in a series of communities.

The Canadian Transportation Agency announced Tuesday that it will cancel the certificates of fitness for the Montreal, Maine & Atlantic Railway Ltd. and its Canadian subsidiary in another blow to an already crippled railroad company.

The arm's length federal agency said it struggled with the decision, given the potential impact on companies and jobs in more than a dozen Quebec communities along the railway.

It made the move after reviewing the railway's third-party liability insurance following the fiery July 6 derailment that killed 47 people and wiped out part of downtown Lac-Megantic.

"We have concluded that (the coverage) is not adequate, thereby we have no choice but to suspend their certificate of fitness," agency spokeswoman Jacqueline Bannister said in an interview.

"We have given them until Aug. 20 to conclude their railway activities in Canada."

Many companies served by the MMA railway have been forced to make transportation adjustments since the derailment cut off service around Lac-Megantic, near the U.S. border.

Some have turned to trucks to move their goods, while others have used the services of other railways — and, in certain cases, a combination of the two options.

But some companies along the Canadian stretch of the railroad insist that their very survival hinges whether they can move cargo along MMA's tracks, which run from Montreal to the Maine sea coast.

"It's our transporter — they bring us our raw material and they ship out our finished product," said Pierre Marchand, head of engineering for AkzoNobel's plant in the town of Magog, where the company employs about 50 people.

"We can't consider operating our plant here for a very long time without rail transport — we're talking about days."

Marchand said the factory, which has been producing sodium chlorate for the pulp-and-paper industry since 1979, also supplies material for a neighbouring hydrogen plant.

That other company, he added, employs around 30 people and is dependent on AkzoNobel.

"For us, it's essential and we're not the only company in this situation," said Marchand, who noted that shipping his company's finished product by truck is not a feasible option.

"There are lots of companies that depend on rail transport in the region."

A union representative for MMA workers in Quebec said Tuesday that he's very disappointed the railway will lose its operating licence next week, but he understands the importance of having sufficient insurance coverage.

Pierre Arseneau of the United Steelworkers said he's concerned about the dozens of jobs at stake and hopes another operator will take over the railroad quickly if MMA loses its permit.

Twenty-four of the railway's 75 employees in the province have already lost their jobs since the derailment, but Arseneau fears the impact of the suspension could reach well beyond MMA if a solution isn't found quickly.

"You have to understand, it's the jobs of our members, but it's also the whole economy of the region," Arseneau said.

"There are lots of companies that depend on the railroad."

For MMA, its own survival seemed like a longshot even before Tuesday's announcement.

Since the derailment, several lawsuits have been filed, a criminal investigation is underway, railroad standards have been tightened, and the provincial government has demanded money from MMA for the massive cleanup efforts.

Last week, the railway was granted creditor protection in Canada and bankruptcy protection in the United States after it stated that it did not have enough assets and insurance to cover the mounting costs of the disaster.

In court documents, the Canadian subsidiary said it only had $25 million in insurance coverage, while estimating the environmental cleanup alone will exceed $200 million.

The Canadian Transportation Agency says it has advised the railway that it must maintain at least the same amount of third-party liability coverage it had before the derailment.

But it says MMA's insurance broker indicated the aggregate coverage had been cut in half since the derailment. The agency added that the railway failed to provide evidence it had additional insurance to make up the difference.

"The agency is also of the opinion that the company no longer has the financial capacity for its self-insured portion," Bannister said.

The agency said that over the last decade, no claims by a federally regulated railway have ever exceeded the limits of its third-party liability insurance.

In the wake of the disaster, the regulator has also announced plans to review the insurance coverage of federally regulated railways this fall, given the ongoing increase in shipments of crude oil and other hazardous materials.

The president of MMA, which has resumed some of its Canadian operations since the derailment, said Tuesday that he hadn't seen documentation about the licence suspension.

"I know nothing about it ... so I can't make any comment," said Robert Grindrod, who was then asked whether he would be available to discuss the matter later in the day, once he had read the documents.

"Unlikely. OK, thanks. Goodbye," he said before hanging up the phone.

An official in the office of MMA chairman Ed Burkhardt, contacted Tuesday, said he wasn't yet aware of the licence suspension.

Burkhardt did not respond to a request for an interview on the subject.

The chairman of the Canadian Transportation Agency said in a statement Tuesday that he's aware MMA's suspension affects the economies of communities along the railway, workers and shippers who depend on rail services.

"This was not a decision made lightly," Geoff Hare said.

"It would not be prudent, given the risks associated with rail operations, to permit MMA and MMAC (MMA Canada) to continue to operate without adequate insurance coverage."

The business community close to Lac-Megantic hopes the problem will be resolved soon, particularly in a region with an already tough economy and where some businesses have had no rail service since the derailment blocked a crucial section of tracks.

The industrial commissioner for the region said Lac-Megantic companies such as Tafisa, a particle-board manufacturer that employs a few hundred people, have had to spend more money by transporting their goods by truck.

"I hope that the government will operate (the railway) or that they will have different operators that can either buy or be the operator ... until a permanent solution will be found," said Michele Tardif.

"They can probably find someone to be the operator, manage the line. Someone that is more reliable than MMA."